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Consumer&#39s View

Last week, National Savings published figures showing that sales to the end of November for financial year 2000-01 were £7.9bn, with a total invested of £63bn – a 20 per cent rise on 1994-95. No doubt, National Savings officials are pleased with themselves.

But while Government regulators quite rightly castigate financial institutions such as the banks and building societies, for playing on investors&#39 apathy or lack of sophistication, paying ever decreasing returns to holders of old or obsolete accounts and not informing customers when better rates are on offer, this is precisely what National Savings does.

National Savings will not reveal how much is languishing in matured savings certificates but the rate of return is a miserable 2.85 per cent – equivalent to 2.28 per cent to a basic rate taxpayer.

Few of its products offer competitive rates and last week the returns on its investment account, pensioner bonds, fixed-rate savings bonds, children&#39s bonus bonds and savings certificates were all reduced by between 0.24 per cent and 0.4 per cent.

Some of the rates are little short of a scandal, given that most National Savings customers are likely to be unsophisticated savers such as pensioners with small amo-unts to invest.

Five-year pensioner bonds are currently paying a fixed rate of 4.75 per cent gross. This compares with market-leading rates of 7.25 per cent fixed for five years from Capital One Bank for sums of £10,000 and average rates of around 6 to 6.25 per cent gross.

Accompanying the rate reduction announcement, there is a splendid graph of the UK gilt yield curve with the comment: “The current low-infla-tion environment means that market yields on all maturities up to seven years continue to fall, which affects National Savings rates and those of other savings providers.”

It continues: “With inflation currently running at 2.9 per cent, savings rates still offer an attractive real rate of return. In times of market uncertainty, National Savings is valued by its savers and investors because of the security it offers, giving the peace of mind customers are looking for.”

Go tell that to your granny. If she realised she was receiving at least 1.5 per cent less than the going rate for five-year fixed-rate investments, she would, no doubt, tell National Savings where they can put their “peace of mind”.

“It is a National Savings disgrace,” is the outspoken criticism from IFA Colin Jackson of Baronworth Investment Services. “Anybody over 60 should not on any account invest in National Savings pensioner bonds as better rates can be obtained by investing in guaranteed income bonds if they are a taxpayer.

“In fact, for larger sums, the gross return from National Savings pensioner bonds is actually less than the net of basic-rate tax return from guaranteed income bonds.”

Even National Savings certificates, long a haven for the savings of higher-rate taxpayers, are now offering returns so paltry that it is difficult to believe that any are sold. At 3.65 per cent tax-free for two-year certificates and 3.55 per cent for five-year investments, there are plenty of alternat-ives offering better returns after tax, even for the 40 per cent taxpayer.

Capital One&#39s five-year fixed-rate deposit at 7.0 per cent is equivalent to 4.2 per cent after tax to a higher rate taxpayer.

No doubt National Savings will attempt to justify its uncompetitive rates by pointing out the high administrative costs on small amounts of savings. But until we see figures of how much money is invested in each product and average sums invested per saver – information which National Savings refuses to reveal as though it were a state secret – we cannot possibly judge whether this is justified. So much for “open government”.

And is the Treasury not currently reviewing “social exclusion” and why those with lower incomes and small amounts of savings get such a poor deal, berating the banks and building societies for discriminating against the lower paid by offering lousy returns and expensive services?

Perhaps the Treasury officials ought to take a look on their own doorstep before they launch another attack.


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